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From Antitrust Law Daily, July 18, 2013

Zipcar not liable for higher late return fees

By Jody Coultas, J.D.

A Zipcar, Inc. member could not state a Massachusetts Consumer Protection Act (CPA) class action claim against Zipcar for allegedly charging exorbitant late return fees, according to the U.S. Court of Appeals in Boston (Reed v. Zipcar, Inc., July 17, 2013, Souter, D.).

Zipcar operates a car-sharing service that allows members to reserve cars by the hour for a fee proportional to the period agreed upon. The reservation contract requires the customer to return the rented car to its origin by the end of the specified period. Members agree to pay a $50 hourly late fee if they return a car late. After the member paid a $50 fee for returning a car within one hour after the reservation time expired, she filed the CPA class action claims contending that Zipcar’s late fees were unfair and disproportionate relative to the costs of late returns, and did not reflect reasonable forecasts of damages due to late returns.

A district court dismissed the CPA claims because the damages estimate of late returns could not be done with precision, much less easily, and that the member failed to offer any reasonable approximation of the harm that Zipcar could expect from breach. The fact that other companies charged lower fees did not support a plausible inference that Zipcar’s fees were grossly disproportionate. The court also held that the member failed to allege that Zipcar’s late fee was concealed or that she was misled.

The district court did not err in dismissing the member’s CPA claim, according to the court. The member did not plausibly allege that damages were easy to ascertain at the time of contract formation. Conclusory statements about Zipcar’s capacity to monitor its fleet, the fact that it clusters cars close together, and that Zipcar has in place “protocols” “to systematically impose” the late fees did not supports an inference that the parties could have easily anticipated the likely damages from a late return. The member even acknowledged that the cost to Zipcar of a late return would fluctuate depending on a number of factors.

It was sufficient for Zipcar to show that the complaint did not contain allegations of what a reasonable estimate of damages would be to defeat the claim, according to the court. The member failed to allege facts that could support an inference that the late fee was on the upside of a reasonable forecast of Zipcar’s damages in the event of breach.

Public policy is violated by fees that are grossly disproportionate to the expected damages arising from a breach of an agreement, or are unconscionably excessive. There were no allegations of what would be a reasonable estimate of damages. Evidence of rates charged by competitors was insufficient because there was no evidence that the cited rates reasonably approximate the cost of breach.

Two of the four competitors cited did not exist when the member joined Zipcar. The fees imposed by the remaining two competitors were offered in a vacuum, devoid of facts that would support an inference that their fees exemplified a persuasive industry standard or reflected the actual costs faced by a firm like Zipcar. There are numerous reasons that firms might offer rates lower than the dominant market participant, the court reasoned.

The case is No. 12-2048.

Attorneys: Frank John Jablonski (Richard & Hurwitz, LLP) for Naomi Reed. Matthew Rawlinson (Cooley Manion Jones LLP) for Zipcar, Inc.

Companies: Zipcar, Inc.

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